Categories
Financial Literacy Investing

Ex-Dividend Dates Explained: What, When & Why

Understand ex-dividend dates

What does it mean when a stock goes ‘ex-dividend’? As you’ll see in this brief guide, the ex-dividend date is an important part of the income investing — and, potentially the value investing — process. We explain what it means and why you should understand its impacts when buying stocks for both capital gains and dividend income.

If you’re new to income investing, you may think earning dividends from stocks you own is simple and straightforward.

In principle, it is; You buy shares in a profitable company that pays a portion of its earnings out as cash dividends to investors who’ve traded their capital for shares in the business.

I’ve personally been receiving income from some of my investments for years now.

I’ve seen first-hand how powerful a steady stream of dividends can be for your overall portfolio performance.

But understanding investment income is a little more complex than just buying and holding any stock that pays a dividend.

Here, we explain the finer points of dividend payments.

As you’ll see, the date a company pays out a dividend to shareholders is just one of the key dates you need to be aware of as an investor.

What Does It Mean When A Stock Goes Ex-Dividend?

There are four key dates around dividend payments.

The first is the declaration date. This is the date the company announces it will issue a cash dividend in the future.

Second, you have the record date. That’s the date the company goes through its list of shareholders to confirm those who are eligible to receive the upcoming dividend.

Third is the ex-dividend date.

This is an especially important one, as it determines which shareholders will be considered eligible on the record date.

The ex-dividend date is commonly set two days before the record date.

This means you must own shares in the company on or before that date in order to qualify for the upcoming dividend.

Finally, there’s the dividend payable date, or simply the payment date.

That’s exactly what it sounds like; the day the company pays out the dividend to the shareholders who’ve met the criteria to receive it.

An example of the four dividend dates
An example of how the four dividend dates might be structured

Those are the four key stages of a dividend.

The ex-dividend date is arguably the most important because it’s the cut-off point for determining whether or not you will receive the next scheduled payment for your shares.

Is It Better To Buy A Stock Before Or After The Ex-Dividend Date?

In my opinion — and everything on our blog is opinion, it’s not financial advice — there’s no great advantage to buying before or after the ex-dividend date.

But that’s because I personally prefer to hold any shares I buy for a relatively long time.

If you’re looking for a quick cash gain, you may consider trying to buy shares in a stock right before the ex-dividend date.

On paper, that might not seem like a bad idea.

In reality, the market adjusts the stock price when a company trades ex-dividend. This takes account of the cash payment being made to shareholders.

Generally, the share price adjusts by the amount of the dividend, meaning if you buy right near the ex-dividend date and sell right after the dividend payable date, you could take a small capital loss despite having captured the income.

In other words, trying to dip in and out of a stock to grab the dividend may not work out as profitably as you’d hoped.

Even if that weren’t the case… and you could dip in and out of a stock quick and easy to claim some fast income, you’d still have fees and taxes to contend with, which would eat into your gains (see the full list of factors that impact your true portfolio performance).

Still, there probably are people out there who buy and sell around ex-dividend dates regardless of the downsides. So…

Are Ex-Dividend Dates Value Investing Opportunities?

I personally follow the value investing strategy set out by Benjamin Graham and, later, Warren Buffet.

I prefer to look for high quality companies trading below their true value.

If I find one of those, I’d rather buy shares and hold them for a (very) long time than trade frequently.

So, for me, an ex-dividend date isn’t necessarily an investment opportunity in itself.

But, if I calculate that this is a stock I want to own, I might look to get in before the ex-dividend date.

Having said that, since my investment strategy is a long term one, missing a single dividend payment by buying in after the ex-dividend date wouldn’t bother me one bit.

I’d be looking to hold (that’s stockspeak for ‘hodl’ if you’re joining us from the crypto world) those shares for many years, ideally capturing a long term capital gain plus the income the company pays out over that time.

But, that is just me. Not everyone invests the way I do (learn about my experience buying my first ever shares to see why I invest the way I do).

I hope this post has shed some light on ex-dividend dates, the process they’re part of, and the impacts they can have on both stock prices and investment income.

Categories
Investing

The Big Short (Squeeze): Unpacking The GameStop Saga

GameStop short squeeze

A subreddit community takes on the Wall Street elite. The battleground? A struggling brick-and-mortar games retailer. What does the GameStop short squeeze saga reveal about the changing investment landscape… and investing in a market where powerful, internet-driven trends can make seemingly worthless assets explode higher for no real reason?

Make no mistake; The GameStop story runs deeper than a group of investors collaborating on Reddit to push a stock to all-time highs for the sake of it.

ICYMI, GameStop, a video game and consumer electronics company floundering in recent years amid failed investments and the rising dominance of online retail, rocketed from $US17.25 to $US325 in the first month of 2021.

Why?

Because the users of r/wallstreetbets orchestrated a massive ‘short squeeze’ in a bid to push GameStop’s share price up to $1,000.

For some, the mission appears similar to a ‘crypto pump’, where investors band together to drive a tiny, cheap cryptocurrency’s price higher so they can cash out for massive, quick profits.

For others, however, the GameStop short squeeze appears to be about more than getting rich quick.

Because if the internet raiders can continue to push the stock’s price higher, they’ll cause the hedge funds and Wall Street elites trying to ‘short’ GameStop to lose large sums of money.

In other words, this is like the stock market equivalent of the people rising up against the vastly more powerful individuals whose wealth traditionally dominates the stock market and whose influence and power traditionally rakes in the biggest profits — often at the expense of everyday investors.

What Is A Short Squeeze?

To understand what a short squeeze is, you need to know what shorting is.

In simple terms, short selling is when you borrow shares from a broker and sell them for a given price, under an agreement that you will buy those shares back at a given point in the future.

If you borrowed $5,000 worth of shares in a company you thought was going to be trading 50% lower in three months — and your prediction proved correct — you’d be able to buy those shares back for $2,500, return them to your broker and pocket the other $2,500.

That’s the basic idea of short selling.

It’s a way to potentially profit from prices falling instead of rising.

A short squeeze is when upward price movement puts pressure on short sellers whose shorts are nearing expiry.

GameStop is a prime example.

Investors buy up the stock, driving the price higher. This pressures the short sellers to buy too, since they are trying to protect themselves against the losses they’ll incur if the stock doesn’t fall to their target price by the agreed date.

Another way to think of a short squeeze is that it’s a battle between those wanting to profit from higher prices, and those wanting to profit from lower prices.

Veteran Trader: Beware Ego, Bias & Thinking You Can Resist The Trend

Jason McIntosh is the founder of Motion Trader, an algorithmic trading and stock market advisory service.

Jason’s been investing and trading professionally for three decades.

Here, he shares his thoughts on short selling, the GameStop story and a dangerous idea many investors grapple with.

“Short selling is a dangerous game, even for the professionals.”

— Motion Trader’s Jason McIntosh

It’s a situation where there is unlimited downside and limited upside i.e. the most a stock can fall is 100%, but it could rise many times more (as the short sellers of GameStop experienced).

It’s basically the opposite to what investors should be looking for.

I target set-ups where I have “asymmetric” risk/reward. That is, I need the potential of making much more than I’m risking.

While short sellers can get this dynamic, it’s nowhere near as good as when you buy shares.

Before I invest in anything, I ask the question: Could I make a multiple of what I’m risking?

“No matter what your numbers say, all that matters is what the market does.”

— Motion Trader’s Jason McIntosh

Another thing to bear in mind is around following the price action.

I’m sure there was ego involved with the GameStop short sellers.

They did their numbers and they were sure they were right — this probably made resistant to taking an early loss.

But no matter what your numbers say, all that matters is what the market does.

It’s more important to exit and stay in the game, than fight on and risk being wiped out (something many retail investors experience).

“Simple lesson: Don’t fight the trend…”

— Motion Trader’s Jason McIntosh

The final point is that markets can run further than just about anyone can imagine.

This is why investing with the trend and letting winners run is so important.

GameStop, Tesla, Bitcoin, and many others had huge gains amidst widespread disbelief.

Many people have lost large sums of money fighting the trend. Others left big sums on the table by exiting too early.

Simple lesson: Don’t fight the trend and let your profits run.  

Buy The Hype? Or Ignore The Noise?

The conflict between fundamental value and market behaviour has always been a point of contention for investors.

The GameStop story — still unfolding at the time of writing — shows you two things.

First, the power of the market to make investors abandon ideas of fundamental value and pile in on a trend.

GameStop isn’t Tesla. It’s a beat-up traditional retailer that probably would still be trading flat were it not for r/wallstreetbets.

Second, the power of the internet to challenge the financial establishment.

As Jason points out, Bitcoin and GameStop aren’t that different.

One could take the view that they’re junk assets devoid of any meaningful fundamental value.

Or, one could look at the gains and accept that when a trend takes hold and creates events like these, you’re better off being in to win than sitting on the sidelines.

Whichever way you prefer to view it, the reality is that the GameStop short squeeze is going to make (and lose) a lot of people a lot of money.

Categories
Cryptocurrencies Investing

The Top 10 Performing Cryptocurrencies Of 2020 (Bitcoin Wasn’t Even Close)

top cryptos 2020

Last year was packed from beginning to end with extreme and unexpected events. The cryptocurrency markets were no exception. In this post, we reveal the top 10 performing cryptos in 2020, how they compared to the top performing stocks, and share some analysis and predictions on Bitcoin and the wider crypto and blockchain sectors for 2021.

Bitcoin is the coin we most often talk about when discussing the boom and bust cycle of the cryptocurrency markets. The original crypto recently smashed through US$40,000 to make yet another all-time high.

But looking back on 2020, it turns out Bitcoin didn’t even make the top 10 in terms of gains.

When you zoom out and compare the crypto markets to the major stock markets in the US, you’ll see that the top performing crypto — with a tiny market caps relative to Bitcoin — eclipsed even the so called ‘Golden Bull’ microcap NASDAQ top performer last year.

So what wild and unexpected twists and turns will we see across stocks and cryptos in 2021 after the crises-packed 12 months just gone?

Let’s start with the top performing cryptocurrencies of 2020 (all prices are in US Dollars).

An Average Gain Of Nearly 1,700%: The Top 10 Performing Cryptocurrencies Of 2020

With so many different exchanges and price trackers around for cryptocurrencies, it’s not uncommon for investors to never really know the all-time high for a particular coin.

The same goes for determining the precise price movement for a given period.

According to coincodex.com, the top performers for 2020 were:

KSM: 4,813%
CEL: 3,263%
YFI: 1,832%
THETA: 1,776%
SNX: 1,481%
ZIL: 1,204%
ADA: 662%
ETH: 608%
WAVES: 595%
XEM: 533%

Bitcoin came in 15th, just over 300%, before it embarked on its steep ascent to new highs the first weeks of 2021.

Ethereum was by far the biggest crypto by market capitalization in the top 10, ending the year just over $100 billion.

Top performer, KSM, had just over half a billion dollar market cap.

So you can see that much like the microcaps that come from nowhere each year to top the stock market gains leader boards, it was — apart from ETH — the smaller, lesser recognized cryptocurrencies that produced the biggest gains in 2020.

A $1,000 investment in KSM could have transformed into just under $50,000 in 12 months.

As for the top 10 cryptocurrencies by market cap, this widely-referenced annual experiment spread $1,000 evenly across each.

The return, a less stellar but nonetheless impressive 139%.

Still, when you compare that against the S&P 500’s 16% gain in 2020 (admittedly, still impressive during a pandemic!), there’s no denying where you would have been better investing that $1,000 last year.

Given the explosive start to the year cryptos have had in 2021, what might be possible in the next 12 months? We’ll get to that. First, let’s look at stocks.

NASDAQ Plays Host To Biggest 2020 Stock Gains (Thanks BTC) While Tech Stocks Dominate S&P 500

The NASDAQ more than doubled the S&P 500’s 16% annual gain in 2020, finishing up 43% higher at the end of the year.

But the top performing stocks on those indices gained way more than that.

Technology dominated the S&P 500, where Tesla ended 2020 the top performer on 743%, Etsy delivered 302% and Nvidia gained 122%.

Over on the NASDAQ, however, a string of microcap tech companies not traded on the S&P 500 delivered some crypto-esque gains.

In fact, the top performer, Bit Digital (which gained 3,691%) owed it’s number one status directly to the crypto bull market that took hold late in the year.

The microcap car rental company focused on mining bitcoin, which allowed it to outperform vaccine companies, renewable energy stocks and biotech players.

Three of the NASDAQ’s top 10 last year gained their spots through cryptocurrency activity.

The highest performing non-crypto stock on the NASDAQ last year was Novavax, which received more than $1.6 billion as it emerged as a player in the COVID-19 vaccine contest of 2020. 

So it’s not as though last year was a write-off for stocks and a home run for cryptocurrencies.

But, while the best performing stock on the major US exchanges could have turned $1,000 into more than $40,000 (thanks Bitcoin), the top performing crypto last year still could have made you a better return.

And if you’d gone for a more measured approach and deployed that $1,000 across the top 10 cryptos by market cap (which represent most of the capital in the crypto markets), you could still have more than doubled your money, compared to relatively weaker double-digit gains from the NASDAQ and weaker again from the S&P 500.

Here at Navexa we aren’t in the business of telling you what to buy or sell.

Whether it’s an asset class, a sector or an individual investment, we only look at the data. The past is never a guide to future performance for any market, sector or investment.

When you consider what a wild ride the world and the markets went on last year, you can understand why making predictions about 2021 is especially fraught.

Our Crypto Analyst’s Three Predictions For 2021

Aaron Boyd is a blockchain engineer and co-founder of Pretoria Research Lab in Berlin.

According to Aaron there are three major developments on the cards in the crypto space this year.

The first hinges on continuing monetary expansion and currency devaluation (which you can read more on in our Medium article here).

“Twenty five percent of all US Dollars in existence were printed in 2020.”

That’s not a typo.

The amount of money in the global financial system exploded higher again last year as governments keep up the same strategy they’ve been using to deal with crises for centuries — printing more.

Aaron: “Trillions more Dollars will be printed in 2021 for COVID relief and stimulus packages. This will result in new all-time highs for crypto assets — and stocks.”

That might sound strange, but as fiat currency itself grows less valuable as a result of its diminishing scarcity, that ‘cheap money’ pours into the stock market at the same time as it boosts interest and confidence in Bitcoin’s intrinsic (and decentralized) scarcity.

In other words, in terms of crypto and stock prices in 2021, expect to see more of the what we saw in 2020.

Aaron notes that cryptocurrencies are increasingly becoming a credible alternative hedge to expansive monetary policy.

Gold and other precious metals have historically held this safe haven role.

But in 2021, we’ll see more private investors and institutions choosing Bitcoin over bullion.

It won’t all be smooth sailing and ever higher prices, though, according to Aaron.

“There will be another market correction after the past couple of months’ bull run.

“Bitcoin will be declared dead for the 417th time!”

No Matter Where Stocks & Cryptos Go In 2021, Make Sure You’re Effectively Tracking Your Performance

Whichever way you slice it, 2021 is going to be an unprecedented year for the markets.

Bitcoin probably could be declared dead yet again… And then go on to hit $100,000 a month later.

That’s not a prediction. But after such a turbulent 2020, you have to concede that anything is possible this year — in both stocks and cryptos.

Whether you’re investing in one or both, make sure you’re getting the data and insights you need to make informed decisions.

The Navexa portfolio tracker gives you the tools to track, analyze and report on ASX, NASDAQ and NYSE holdings and every cryptocurrency, as well as cash accounts and unlisted investments.

Categories
Financial Technology

The 30 New Features We Added To The Navexa Portfolio Tracker In 2020

Evolution is essential in financial technology. In 2020, continuous development and improvement took the Navexa platform from a basic, single-currency portfolio tracker to a multi-currency, multi-asset portfolio tracker that allows you to track, analyse and report on virtually anything you want.

Twelve months ago, Navexa welcomed the first subscribers to our portfolio tracking platform.

Now, as 2020 draws to a close, the people joining Navexa today are finding a very different service from the one those initial subscribers signed up to.

The early Navexa interface
Navexa in late 2020

In this post, we’re detailing 30 notable improvements and updates we’ve made to the platform over the course of 2020.

Note: We’re not including the Mobile App we launched this year as a new feature!

#1 Bulk Portfolio Uploader

Initially, you had to manually add individual holdings and trades to your Navexa account.

So our first order of business this year was to make life easier for you to upload your whole portfolio.

Our Bulk Uploader tool provides a simple two-step process for adding your portfolio using a CSV template.

#2 Taxable Income Report

Our next move was an important one for our community: The ability to generate a taxable income report from your account.

This means you can easily collect data on all your dividend income for tax purposes.

Plus, if you hold stocks that pay dividends in a foreign currency, your account reports on them, too.

#3 Portfolio Contributions Report

Subscribers can access portfolio contributions report.

This shows you how each of your holdings is contributing to your portfolio’s overall performance.

It’s handy in understanding quickly which of your assets are boosting or dragging your total return.

#4 File Attachments

Navexa lets you upload trade statements and dividend statements to go with a particular trade.

This helps you centralize your documents and streamlines personal record keeping.

#5 Adding Notes

Along with file attachments, we added a feature that lets you make and save notes on specific trades and dividends for future reference.

#6 PDF Report Exporting

About the same time, we updated the portfolio diversification chart in the portfolio screen and made it possible to export PDFs for your capital gains and income tax reporting.

#7 Portfolio Sharing

Portfolio tracking might be at the core of Navexa’s service. But behind that are core values that include financial literacy and democratisation.

So, we developed the platform that that you can invite other people to view a read-only version of your portfolio.

You can invite existing users, or invite non-users to view you portfolio by creating their own account.

#8 Date Range Control

We added a date range control at the top right of the portfolio screen.

You can filter the whole page by the range you select.

This allows you to see the capital gains for the day, the week, the month and so on.

This change applies across your account, giving you more analytic flexibility.

#9 Automatic DRP Recording

This update allows you to switch on the Dividend Reinvestment Option to record dividends as new shares instead of income.

A simple, but important development that delivers more flexibility.

#10 Chart Upgrade

We upgraded our performance charting so you can now view performance in percentage terms with ASX benchmarking.

#11 20X Faster Market Data

This change mean the ASX data Navexa uses to display your portfolio and holding analytics now updates more than 20 times faster than before.

#12 Intra-Day Pricing

We rolled out an intra-day price chart for your portfolio and holdings.

This allows you to monitor price action during live trading sessions.

#13 More Data-Rich Update Emails

We improved the weekly and monthly portfolio update emails connected to your account to show you more information about how your portfolio has performed over those time periods.

#14 Mobile App Fingerprint Login

Over on our mobile app, we added finger print login capability, making it easier and faster to log in to your Navexa account on your phone.

#15 NYSE & NASDAQ Exchanges Added

One of the biggest changes we made this year was expanding Navexa from just Australian stocks and funds to include the two majors US markets.

The platform now delivers official data from the ASX, NYSE and NASDAQ.

You can add and track holdings from the US exchanges like you would ASX-listed holdings.

Your account will still report in AUD (and show you the currency gain or loss on your holding screen, too).

We also adjusted our bulk uploader tool so you can use it to import your US holdings.

#16 Return Of Capital Trade Adjustments

Navexa now supports Return of Capital events. You can add these events to a holding and the tax reporting tool will automatically account for it when you create a report.

#17 Another Charting Improvement

We made a small improvement so that all performance charts start at 0.

#18 Automatically Import New Trades

Navexa Link is our tool for importing trades from your broker using contract notes.

We created it so that, even after you’ve used the Bulk Uploader to start your account, you don’t have to keep manually adding new holdings and updating trades.

All you need to do is follow the simple guide we’ve created to set up your email account so that your Navexa account can start reading your contract notes and updating your portfolio accordingly.

#19 Upcoming Dividends Report

Wondering when your next dividends are due? Wonder no more.

We created a report that allows you to see your upcoming dividend payments from the holdings in your portfolio. How far ahead the tool can forecast depends on the individual holding.

You’ll see a chart plotting when your payments are due in the time frame you specify, and a table of payments with your total income at the bottom right.

#20 Dividend Contributions Report

Consider this one a cousin of your Portfolio Contributions report. This lets you see at a glance which holdings are bringing in the most — and least — income for your portfolio.

#21 Unrealized Capital Gains Report

Your UCG Report shows you what tax you’d have to pay and what cash you’d have were you to sell some or all of your holdings.

Navexa’s Reports page

#22 Upgraded Holding Screen

We re-arranged the layout of the holding screen and added more information.

You can now access pricing and dividend information, view trades and adjustments, relevant news and more.

#23 Trust Tax Reporting

This update means you can now run tax reports for ETF holdings. You’ll see additional fields on the add/edit dividend page and that will be reflected in your taxable income report.

#24 More New Brokers For Navexa Link

We’re always adding to our list of Navexa Link-supported brokers based on what our community tells us they need. We recently added Self Wealth & CMC Markets.

#25 Portfolio Groups in The Navexa App

Accessing Navexa on iPhone and Android continues to become better. You can now view your portfolio groups in the app and on PC.

#26 Account Search Function

Click the ‘Search’ icon or hit forward slash on your keyboard to search a holding or portfolio within your account.

#27 Holding Opening Balance Control

Many Navexa users add holdings that they first bought years — or even decades — ago.

That means you may not be able to easily access the exact buy price for a stock.

Now, you can choose to set the opening balance of shares for a holding instead of the exact buy price.

In other words, even if you don’t have access to the necessary historical data, you can still measure the holding’s performance.

#28 DRP Balance Tracking

We’ve improved the Dividend Reinvestment Plan tracking capability in your account.

If you hold a stock that has a ’round down’ DRP, select ‘Round Down With Balance Tracking’ from the holding’s DRP dropdown menu.

#29 Track Unlisted Investments 

Navexa started out for tracking stocks. Then, we added cryptocurrencies and cash accounts. Now, you can track pretty much anything you like in your account. We’ve added Unlisted Investments to the ‘Add Holding’ options. We’ll be refining this in the near future so that you can track specific aspects of unlisted holdings like property, vehicles and collectibles, for example.

Simply select Unlisted Investment next to Cash Account to add a custom holding.

Unlisted Investments
You can now add Unlisted Investments to your Navexa account

#30 Improved Complex Situation Accuracy

We’re always fine tuning the Navexa platform so that it gives you more accurate, useful analytics on your portfolio and holdings. At the time of writing, we’re about to update the performance calculation equation to more accurately reflect and report complex situations (for example, if you made several buy and sell trades on a certain holding).

30 Improvements and Counting:
Much More to Come in 2021

Navexa has grown more than ever in the past 12 months. Your account now delivers more tools, more accuracy, more speed, more reporting — more of all the things you need to effectively track, analyse and understand your investments, be they traditional stocks, cryptocurrencies or unlisted investments.

The next 12 months holds much, much more for our platform.

If you have any features or tools you’d like to see added to the platform, don’t hesitate to get in touch.

Categories
Financial Literacy Investing

Three Mistakes To Avoid When Calculating Portfolio Return

The truth about portfolio performance and investment returns is a lot more complex than most people realise. Here’s three tips on better understanding how your money is performing in the market over time.

When someone asks you how your investment portfolio is performing, what do you say?

‘Not bad’? ‘Could be better’? ‘Stock X has been on a tear lately’?

If you use a financial advisor to manage your investments, do you simply glance at the ‘annual return’ figure and say that’s how your portfolio has performed?

What about income from dividend payments?

Or taxes?

What about time?

Are you happy to look at the short term and cherry pick assets that have performed well?

In this post, we’re going to explore the common problems people have in understanding and expressing their portfolio performance.

Specifically, we’re revealing three mistakes you should avoid when you’re analysing your portfolio and determining its performance.

These mistakes relate to our understanding and perspective on time, our tendency to ignore the impact of dividend income and reinvesting, and the dangers of ignoring the impact fees and taxation has on your overall portfolio performance.

Here at Navexa, we believe intelligent investing hinges on carefully analysing data to get a clear view of your portfolio’s big picture.

Mistake I: Not Annualizing
Your Investment Returns

Say you buy a stock at $5.00 and you sell it for $10.00.

Boom, that’s a 100% gain!

Awesome, you doubled your money.

Good for you. But, what’s missing from the above account of your epic gain?

Time.

Consider this; Two investors buy a stock each. The stock price of both increases by 100%.

Say it took one of them 12 months, and the other three years.

Is it the same result?

On paper, yes. Their capital doubled.

But there’s little doubt you’d rather do it in one year than three.

When you ‘annualize’ your investment returns, you factor time into your calculations.

There are various methods of doing this, but the basic idea is that you divide your capital gain by the time it took you to realize it.

So, 100% in a year is an annualized 100% gain — it took one year to realize.

But 100% over three years is a 33.3% gain, because it took three years to realize.

Annualizing your portfolio performance gives you a more balanced and realistic understanding of your returns over time.

Time, after all, is a finite resource for every investor. So it pays to factor it in!

Mistake II: Treating
Dividend Income Separately

If you own a stock that pays a dividend, you’re collecting income simply for holding the company’s shares.

Investments that pay an income are central to compounding capital and building wealth over the long term.

However, there’s sometimes a tendency for investors to think of their stock’s capital gains as one thing and their income as another.

In some ways, they are separate.

But in terms of calculating the true performance of a holding or portfolio, it’s vital to factor in dividend income.

For instance…

Say Stock A goes up 100% in price over three years (a 33.3% annualized return), and Stock B goes up 110%.

If you fail to account for dividends, you’d think Stock B would be the winning investment.

But if Stock A paid you a 8% quarterly dividend over those three years, and B only a 3% dividend…

Then you’ll find that despite returning a lower capital gain, Stock A delivered the better return on account of the superior dividend income.

This applies even more so when you’re reinvesting your dividends into new shares in a holding.

It’s vital to treat investment income as a factor in calculating you’re overall true portfolio performance.

Mistake III: Disregarding
Broker Fees and CGT Events In
Your Portfolio Performance

Every time you buy or sell an investment, you’ll pay a fee for the transaction to your broker.

Say you pay $10 per trade.

One hundred trades will cost you $1,000 — regardless of whether the investments themselves make any return.

You broker fees should factor into your portfolio performance calculation.

It’s money you’ve spent in the investment process. Money you ideally want to (more than) make back in capital gains and dividends.

The other thing to note about trading fees is obviously that the more you trade, the more capital you’ll burn in the process.

The same goes for CGT — capital gains tax — events.

In Australia, every time you sell a holding you trigger a CGT event.

For argument’s sake, let’s return to the example from earlier.

Say you make a 100% capital gain on a stock over three years.

And say that stock made you another 50% in dividends over those three years.

That’s an annualized gain of 50% (150% total divided by three).

If it was a $10,000 investment to begin with, on paper you’d have $25,000 in capital.

Now let’s deduct the broker fees for buying and selling: $24,980 left.

Now, let’s deduct a notional capital gains tax of 25% on the gain itself ($14,980).

The tax would be $3,745, leaving a gain of $11,235 and total capital after exiting the position of $21,235.

So when all is accounted for — annualization, broker fees and taxation — you’re investment, while you might have liked the sound of 150%, has returned you a 37.45% annualized return of $3,745 over three years.

How Navexa Gives You a Clearer Picture of Portfolio Performance

The Navexa portfolio tracker platform is designed to help you quickly and easily see your portfolio’s true performance.

That means, your annualized return taking into account dividend income, broker fees and taxation.

Cherry picking results to brag about — like the 150% above, for instance — might seem like a good idea.

But the reality of investing is that you must be blunt with yourself about the costs of making money in the markets.

That means not ignoring the key factors we all have to work with when we buy and sell stocks: Capital gains, dividend income, trading fees, tax obligations and, above all, time.

Categories
Cryptocurrencies Tax & Compliance

The Ultimate Guide To Australian Crypto Tax

If you’re buying and selling cryptocurrencies in Australia, you need to know your tax obligations, the ATO’s position on cryptos and a couple of key ideas to help keep your crypto investing and trading on the right side of the law.

When cryptocurrencies burst onto the scene in 2009 with Bitcoin, governments and central banks were quick to deride and discredit the strange new financial instruments. 

It’s wasn’t money, they said. 

It’s a ponzi scheme, they said. 

Cryptos would never threaten to destabilize nor replace ‘real’ money.

The financial establishment largely elected to ignore cryptos in the hope they’d go away. 

But go away cryptos did not.

More than a decade since their inception, cryptos look more than ever as though they’re here to stay.

A quick glance at Coindesk and you’ll see that cryptos and the blockchain technology behind them are edging ever closer to the hallowed ‘mainstream’ adoption:

The institutions and authorities which a few years ago seemed to cover their ears at any talk of them, are now actively seeking to make money on cryptos, too. 

In late July, Bitcoin charged back above $US10,000.

According to analytics from Glassnode, that drove the number of Bitcoin addresses worth more than a million dollars 38% higher to about 18,000.

That’s 18,000 millionaires who may never have grown so wealthy had cryptocurrencies not emerged. 

And when citizens gain wealth — from work, investing, selling property, whatever it may be — the government tends to take a cut. 

Despite remaining skeptical about cryptocurrency’s legitimacy, many governments are now creating new tax legislation in the blockchain space.

That’s the case in Australia and that’s the topic of this guide to crypto taxation. 

Of course, we’re not tax accountants or lawyers, and none of what follows constitutes personal financial advice.

If you’ve been buying and selling crypto and you’re unsure about your tax obligations, this article is a good place to start.

Do You Have To Pay
Tax On Crypto Gains?

The Australian Taxation Office doesn’t regard cryptos as money or foreign currency.

Rather, it sees them as a form of property.

And like property in Australia, they expect you to pay tax on any capital gains you make from investing in this property. 

The ATO says that ‘transacting with bitcoin is akin to a barter arrangement, with similar consequences’.

Those consequences are that you need to pay tax on any gains you make. 

This tax is called Capital Gains Tax (CGT) and is applied equally to cryptocurrencies as it is to other goods such as real estate, shares, and some collectibles or items. 

The ATO spells it out here.

CGT is not a special tax as such, and is simply considered part of your ordinary income you might earn from salaried employment.

The main difference is that capital losses (where sale of an asset results in a net loss) cannot be offset against your ordinary income — only other capital gains, either in that financial year or in the future.

Another important point (and crucial for planning your trades) is that if you hold a CGT asset for 12 months or more, the CGT rate is reduced by 50%.

Example 1: Short Capital Gains

Alice wants to invest in cryptocurrencies, and purchases 1.0 Bitcoin on 1st January for $5,000.

Three months later on 1st April, she sells her Bitcoin for $6,000, and has made a profit of $1,000.

This net gain of $1,000 is added to her ordinary income and charged at the progressive marginal rate for her bracket.

Example 2: Long Capital Gains

Bob purchases 1.0 Bitcoin on January 1 for $5,000.

Fourteen months later on April 1 the following year, he sold his Bitcoin for $8,000 AUD, and has made a profit of $3,000.

However, he has held the asset for more than 12 months and is eligible for the CGT discount of 50%.

Thus the net gain of $3,000 is reduced by half and $1,500 is added to his ordinary income and taxed at the marginal rate for his bracket.

It was folk wisdom (or perhaps wishful thinking) in the early days that only crypto to fiat trades would be applicable for CGT.

This is not the case.

Crypto to crypto tax rules are the same.

The only difference is that you must perform a fair market evaluation of the asset’s worth at the time of the trade in Australian Dollars.

This might be already provided on the trades list for the exchange you use. Or, you might need to use a well-regarded asset tracking site or API to find the backdated asset price.

Example 3: Crypto to Crypto Trades

Charlie purchases 1.0 Bitcoin on January 1 for $5,000.

On February 1, he traded his Bitcoin for 650 Litecoin. On this day, 1 Litecoin is worth $10 AUD. So for taxation purposes, he has sold his Bitcoin for 650 x $10 = $6,500.

The same process then applies. This net gain of $1,500 is added to his ordinary income and charged at the progressive marginal rate for his bracket.

Importantly, $6500 also becomes the cost base for his Litecoin going forward.

When Charlie sells these Litecoin later on, the purchase price is considered to be $6,500.

Does This Mean Tax Authorities
Are Admitting Cryptos Are ‘Money’?

Just because the ATO taxes crypto-to-cash and crypto-to-crypto transactions, doesn’t mean the government is making a declaration on the broader role of cryptos in the financial system.

Nor does the ATO appear to be ‘targeting’ crypto traders to penalize them for making money on the controversial and commonly misunderstood ‘asset’ class.

Here’s the latest guidance from the ATO:

Australia’s crypto tax policy is similar to the legislative requirements you have as an individual if you collect and resell luxury cars for the purpose of making a profit.

Each sale is a CGT disposal and you need to pay tax on that event.

The ATO has for many years now consulted with experts and the public on the taxation treatment of cryptocurrencies like Bitcoin.

Although the laws were perceived by many to be unclear and still in active discussion, since 2014 the ATO guidelines have been very clear.

My Experience: How To
Minimize Crypto Tax Stress

Navexa’s crypto consultant, Aaron Boyd, shares his personal experience on paying tax on his crypto profits:

Having been involved in the crypto space since 2013, frankly I was expecting blockchain assets to remain a grey area for some time and not really require any action. 

Nonetheless, I followed a comprehensive tracking schedule from day one.

This helped me backtrack and ultimately submit amendments for previous years where (at the time) I wasn’t sure exactly how to treat crypto assets.

Here are my three biggest tips:

  1. Record everything. The important information is the action you took (deposits, trades, withdrawals) and the date. If possible, addresses and on-chain transaction IDs are very useful as well. If you have most of this information, you can always calculate your tax liability later on. 
  1. If your situation is complicated, use a blockchain taxation specialist. Crypto Tax Australia has been instrumental in getting my data clean and across the line for a number of years and I can recommend their services . They have been featured on Nugget’s News ( https://youtu.be/1mnn2r1Ysv8 — and I recommend watching this interview ) and have a deep technical understanding of all the various blockchain edge-cases.
  1. Use software that can make your life easier. Originally, I was using bespoke spreadsheets, but this only gets you so far and is incredibly time-consuming, especially if you are a frequent trader. Today, there are many crypto tax software suites that perform exchange imports, automatic price discovery, data cleanliness, tax reporting, and so on. In the past I’ve use Cointracking.info, but there many other great resources now (https://tokentax.co/, https://koinly.io/).

Navexa — the platform hosting this blog post — is one such software service that can help you get your crypto taxes in order.

Navexa’s portfolio tracker lets you track your crypto holdings and trades in fine detail, then auto-generate a comprehensive tax report for a given time period.

From there, you can either report directly to the ATO at tax time, or work with a specialist crypto tax accountant to finalise your tax report before submitting.

Categories
Financial Literacy Investing

Finding Financial Freedom By Creating Passive Income

Financial independence or ‘freedom’ is the ultimate goal for many. But what is it, exactly? We take a look at the role of passive income and intelligent financial management in building financial freedom.

Building a passive income is something many people dream of, but few achieve.

For those who do manage to build a passive income, enjoying true financial freedom becomes more realistic.

It’s easier than you think to build a passive income stream.

Before we get into that though…

What is Financial Freedom, Exactly?

The truth is that financial freedom means different things to different people.

One person might say they only need a million dollars to feel financially free.

Another might say a billion.

Generally speaking, though, financial freedom means collecting a comfortable income from your money, instead of having to trade your time for money.

If you have enough savings, investments and liquid funds available to live the lifestyle that you and your family want, then you have financial freedom.

In other words, you might say it’s having the ability to choose how you spend your time, rather than having to devote your time to making money.

Few people achieve that goal.  

A survey by GoBankingRates found that 69% of Americans have less than $1,000 in their savings accounts.

In Australia, savings.com.au reports that about half the population has less than $10,000 in savings.

Saving for a rainy day is the first and most important step to financial freedom.

Think of it as the foundation for financial freedom.

Once you’ve created a firm foundation, you can start to look at building up passive income.

What Are The Best Ways
To Earn Passive Income?

The idea of having a passive income is often dismissed as a ‘get rich quick’ scheme.

Perhaps that’s because many people don’t like the idea of parking a substantial amount of money in an investment for a long period of time.

The truth is that passive income is the opposite of ‘get rich quick’.

It’s more like ‘get financially free slow and steady’.

There are, however, ways to make the money you are already earning work harder for you and generate a passive income through interest or an investment portfolio.

The average annual return of the stock market over a 10 year period is 9.2%.

That’s far higher than a typical savings account.

If you follow the golden rule of personal finance and pay yourself first by saving some money — even a small amount of money — then the returns you’d see investing in the stock market over the long term could be life-changing.

Imagine you invested $70 per week, every week, for a decade.

With returns of 9.2% per year, compounded, your $33,600 deposits could earn an extra $21,726 in interest, making them worth $55,396.

That’s a pretty impressive return for a relatively modest investment.

The 20-odd grand of interest is your passive income.

If you were able to invest $10,000 a year for 20 years, for argument’s sake, you can see how you’d create a substantial passive income over time.

This long-term, passive income-focused investing can become the path to financial freedom.

How Much Money Do You
Need To Be Financially Free?

Financial independence is a very personal thing. How much money you need depends on your own lifestyle.

In general, if you want to be able to live off the interest on your savings you should aim to be drawing down no more than 4% per year.

So, you should aim to save enough to be able to do that.

If you want to withdraw $40,000 per year, you would need savings of $1 million.

If you live more modestly, you could get away with smaller savings.

Do I Have To Be Rich To
Achieve Financial Freedom?

You don’t have to be rich to start saving.

Simple things like cutting your outgoings and building a modest emergency fund can help you avoid expensive borrowing.

Once you have a safety net you can start investing while looking to increase your income.

Even if you feel like the amount you can save now wouldn’t make a difference, it’s worth making a start.

Consider the snowball cliché.

Even the greatest avalanche starts with a single flake.

And if you’re serious about investing to create passive income and financial freedom, platforms like Navexa give you the tools you need to make intelligent decisions for your portolio.

Categories
Financial Technology

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Categories
Investing

184,000% In 23 Years: Why US Stocks Warrant Australian Investors’ Attention

USA. America stock market exchange / New york stock market analysis forex indicator of changes graph chart business growth finance money crisis economy and dollar trading graph with America usa flag

Why investing outside your home market could lead you to better returns — even if your shares themselves don’t rise in price.

The United States is home to the biggest stock markets in the world.

The most well-known is the New York Stock Exchange (NYSE). 

The NYSE is currently the biggest stock exchange in the world by market capitalization, valued at more than $30 trillion dollars (as of 2018).

If that were not impressive enough, the US also has the second biggest exchange in the world — he NASDAQ.

The NASDAQ is home to the biggest names in the technology world.

Facebook, Amazon, Apple, Netflix and Google (the ‘FAANG’ companies) all trade on the NASDAQ along with Netflix, PayPal and other world-leading tech stocks.

The FAANG stocks alone have a combined market capitalization of $4.1 trillion (as of January 2020).

Compare that to the whole of the ASX, which has a market capitalization of $2.1 trillion (as of November 2019).

The Big Leagues: Exposure To U.S.
Stocks Has Generated Insane Returns

Market capitalization is one thing.

But for individual investors, share price performance is far more interesting.

The US stock markets have produced some of the biggest share price increases in history.

Take Amazon. 

It went public at around $1.70 in 1997. 

Today, Amazon trades around $3,100.

That’s an increase of 184,000%.

That averages out at about 8,000% a year for 23 years — an absolutely huge return. 

Apple shares are a similar story. 

Back in 2003 you could buy an Apple share for $1.50. 

Today their share price is about $380 — an increase of more than 25,000%.

Only Investing In Your Home Market
Could Mean You Miss Huge Opportunities

As Australian investors, 75% of us only invest in shares on the ASX.

While there have been some fantastic success stories in Australia, there are clearly some huge potential gains to be found by investing further afield. 

Most of us are already very familiar with US companies.

Most of us use Microsoft products on a daily basis and could explain the business and its products quite clearly.  

This is already a great start for investing money.

Understanding what a business offers the market and how it operates is generally regarded as essential to buying shares in that business.  

When you think about it, you are probably more familiar with US companies than Australian ones. 

Apple. Nike. Visa. Tesla. 

These companies are not only household names, they’re stock market success stories on a scale many of us can’t really conceive of when we limit our view to the ASX alone. 

Yet 75% of Australians exclude these companies they know and love in favour of ASX listed stocks instead.

One Of The Tenets Of Risk Management
Makes Owning U.S. Stocks An Attractive Idea

Generally speaking, diversification is a primary strategy for minimising investment risk.

Spreading your investments across different stocks and sectors can help protect against big losses while making sure you are exposed to potential gains.

Investing in various stocks and sectors on the ASX is a good start to achieving a diverse portfolio.

But, what happens when there is an event that affects all of Australia?

A recession, for example.

All of the sectors in the ASX could potentially take a hit, dragging your portfolio down regardless of how well diversified you may have been.

This is where diversifying across regions comes in.

Say the local market falls off a cliff, for whatever reason, but you also own stocks in the US.

Your ASX shares might be taking a hit, but your US shares can help stabilise the portfolio, counter-balancing the losses.

Owning U.S. Shares Can Help Diversify
You In More Ways Than One…

One aspect of foreign investing we don’t often talk about is the influence of different currencies.

For instance if you buy 1000 shares for $1 USD each when the exchange rate between US and AUD was 1:1, that stock would be worth $1000 USD, or $1000 AUD.

The share price may not change.

But the exchange rate might. 

If the exchange rate changes to 0.7, your $1000 AUD holding would now be worth $1400 AUD without any capital gain in the stock itself. 

This can have a significant impact on your portfolio. 

Of course, this can go the other way — you can lose value if the currency exchange rates change against you and you sell. 

But it’s an important factor — and one you can potentially benefit from — in diversifying your investments beyond Australia. 

Track U.S. Stocks in AUD (And Currency
Gains) With Navexa’s Portfolio Tracker

Tracking your portfolio performance is an essential part of investing wisely.

Collating, analysing and interpreting data about past performance can help you make more informed, logical decisions about your future strategy.  

If you’re not taking care to track your capital gains, your dividend income and tax obligations, you can’t build an accurate picture of how your portfolio is doing.

And if you’re investing in multiple regions, accurate tracking and analytics become even more important.

Simply put, you need to know if your investing decisions are getting the results you seek or not.

Navexa’s portfolio tracking platform exists to give you the guidance and insight you need to invest on the ASX and in the US. 

It gives you detailed, near real-time analytics and reporting from the individual holding level up to multiple portfolios across the sectors and markets you invest in.

You can easily manage and track your investments across the ASX, NYSE, NASDAQ and most crypto currencies. 

If you invest in US stocks from Australia and you want an accurate picture of how those investments are performing in clear Australian Dollar terms, sign up to Navexa today.

Categories
Financial Literacy Investing

What If You Were Building Wealth From Scratch?

The times they are a changin’. Our need to build wealth is not — but the way we do it is. Here’s some ideas on how (and why) to begin investing now.

Maybe you’re 19 years old and have yet to pop your investing cherry.

Maybe you’re 29 years old and the penny has finally dropped that grinding out a 9-5 job for the next 30 years will bring you more misery than financial security.

Maybe you’re 39 years old and you need to recover having just lost a substantial chunk of capital in the markets.

Whatever the scenario, we’re going to take a look at the investing and personal finance landscape as it stands in mid 2020 and explore a couple of approaches for building wealth from at, or near, zero.

There are some aspects to investing that haven’t changed in hundreds of years.

But there are other parts of the wealth building process that are changing faster than ever before.

If you’re starting out building wealth in the financial markets today, you face a significantly different set of challenges and opportunities than you would have 50, 20 or even just five years ago.

In 2010 index funds were all the rage.

Today, just 10 years on, cryptocurrencies, private equity, micro investing and fintech are driving innovation and disruption to the point where, to many, index funds seem boring.

Starting from scratch today is a different beast on that basis alone — leaving the major economic fallout from COVID-19 aside.

So let’s start with the basics.

The Best Time To Begin Is Always Now

Whenever you begin investing, and at whatever age, your most powerful ally (or adversary) is time.

Anything you do in life requires time.

In investing, how you spend your time is particularly important.

You’ve probably heard the statement that time in the market is more powerful than timing the market.

This refers to the generally accepted idea that on a long enough timeline, stock prices go up.

In a two year period, the market might fall 50%.

But over a 20 year period, the market will probably rise 150% to 200%.

If you’re wondering whether to begin your investing journey now, the answer is yes based on that idea.

Check out this example from The Street to see why.

Take two 25-year olds.

The first commits to investing $5,000 a year for 11 years.

Total starting capital: $55,000.

The second waits until they are 35 to begin investing $5,000 a year and keeps doing so until age 60.

Let’s assume an annualized rate of return of 8% on their invested wealth.

The one who started at 25 invests $55,000.

The other invests $130,000.

Looking at that, you’d assume the second investor would gain the most, having invested more than double what the first did, right?

Well, check this out.

At 8% a year, the first investor has grown their portfolio to $615,000.

It’s taken 35 years to generate $560,000 in profits (forgetting brokerage fees and taxation for the purposes of this example).

The second investor, on the other hand, who started 10 years later but invested over 26 years instead of 11, has grown their portfolio to $430,000 from a total investment of $130,000.

Despite investing more money, they’ve made just $300,000 in profit — more than a quarter of a million dollars less than the one who started at age 25.

That, in a nutshell, is the supreme power of time in building wealth.

That’s why we say there’s no better time to start than now (providing your personal financial situation allows it, of course — this is not personalized financial advice!).

The way that time works for you when you start right away is that your returns compound.

If you leave your money and the returns it generates in the market, then you start making returns on top of those returns.

The more time you allow for this process — which Einstein called the eighth wonder of the world — the more you can benefit from it.

And on the topic of time…

Starting Early Allows You To Be
More Aggressive In Your Investing

If you are in your early 20s, for instance, you have about 33% more time — in theory —  before the notional retirement age of 60 to go about building wealth.

That’s 33% more time you can use to experiment, learn and refine your investing style.

It’s also extra time you can use to recover from any losses you might incur from investing in higher risk assets — like small caps, speculative tech stocks, cryptos and options.

Higher-than-average risk assets can sometimes bring higher-than-average returns.

If you get up and running early in life, you might find you can make some big returns by tolerating the higher risk.

But even if you’re only getting started in your 30s, you might want to allocate a small amount of capital to trying to win big in cryptos or options.

Generally, though, you probably won’t want to take on as much risk, as you’ll have less time — in theory — to recover from any losses your capital suffers.

Whenever you’re starting though, you should:

Cultivate Financial Literacy And Discipline

The saying ‘knowledge is power’ is a cliché. But it is so for a reason.

Because in many senses, it’s true.

In investing, it is especially true.  

In order to take $10,000, or $50,000, or $150,000 and multiply it 10 or 20 or 50 times through investing, you’re going to need to obtain and interpret a lot of knowledge.

Knowledge about the markets, the world, financial technology, business — basically everything.

Becoming financially literate will elevate your knowledge about the world and consequently your ability to navigate your wealth through the markets.

It’s a constant process. Read widely, expose yourself to different ideas about making money the constantly changing landscapes of both personal finance and the wider financial world.

Keep An Open Mind
And Let Data Guide You

Beginning your investing journey in 2020 is in some ways no different from if you were beginning in the 1980s.

But in other ways, it’s markedly different.

Today, you have access to more information than ever before.

If you have an internet connection, you have the ability to find out almost anything you like about a market, stock, anything, really.

You also have access to assets that didn’t exist even 15 years ago — cryptocurrencies — and ways of getting into the market that are only possible because of technology.

Micro investing is a prime example of that.

The apps and platforms that allow you to invest pocket change into funds and stocks take advantage of many strands of modern connectivity and financial technology to make investing more accessible and easy to understand.

You may have heard this trend called the ‘democratization of investing’.

This trend is the latest evolution in the history of wealth building.

Combined with the sheer amount of information available, the current state of the investing world means you have more power and knowledge than ever with which to begin your own wealth building journey.

The bottom line is, if you’re starting that journey in 2020, you should take advantage of the centuries of knowledge and research available to you — and the latest technology to help you implement that knowledge in your own investing.

To sum up then, if you’re just starting your wealth building journey…

Start as soon as possible and take advantage of every tool and piece of knowledge you can.

And now, a shameless plug for the platform we’ve designed to help you do just that.

This interplay between knowledge and technology is central to our portfolio tracking platform, Navexa.

We’ve built it to help you empower yourself and inform your decisions with near real-time data and analytical tools that, in decades past, would only have been available to those in the financial industry.

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